Court rules that criminals must pay income tax, May 16, 1927

On this day in 1927, the U.S. Supreme Court ruled that criminals must pay income tax on their stolen property or face tax evasion charges.

The case, United States v. Sullivan, formed the basis for the government’s 1931 conviction of Al Capone, who led a Chicago-based Prohibition-era crime syndicate, of income tax evasion and sent him for eight years to the then new Alcatraz federal prison.

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The court dismissed the argument that the Constitution’s Fifth Amendment, which protects people from self-incrimination, absolved the defendant, a bootlegger named Manly Sullivan, from having to file a return. It reversed the decision of the U.S. Court of Appeals for the 4th Circuit, which had bought into the Fifth Amendment rationale, in upholding Sullivan’s conviction by the U.S. District Court in Charleston, S.C.

Writing for the court majority, Justice Oliver Wendell Holmes found “no reason … why the fact that a business is unlawful should exempt it from paying the taxes that, if lawful, it would have to pay.”

On the self-incrimination issue, Holmes declared that “it would be an extreme if not an extravagant application of the Fifth Amendment to say that it authorized a man to refuse to state the amount of his income because it had been made in crime. … He could not draw a conjurer’s circle around the whole matter by his own declaration that to write any word upon the government blank would bring him into danger of the law.”

Holmes punted on the question of deductions:

“It is urged,” he wrote, “that, if a return were made, the defendant [Sullivan] would be entitled to deduct illegal expenses, such as bribery. This by no means follows, but it will be time enough to consider the question when a taxpayer has the temerity to raise it.”